||The project will support the Government's initiative to promote financial inclusion through a highly consultative process among the concerned government agencies, banks, development partners and saving and credit groups to improve the policy, supervision and regulatory environment for a wider and deeper inclusion of the low-income population to safe and affordable financial services. The project scope includes a diagnostic assessment of the current framework for inclusive finance, development of a national strategy for financial inclusion and implementation plan for consumer protection, financial literacy and microinsurance, strengthened capacity of the Fiscal Policy Office's Bureau of Financial Inclusion Policy and Development to conduct its supervisory responsibility, and initial priority steps taken towards an improved regulatory and policy framework that will facilitate financial inclusion.
|Project Rationale and Linkage to Country/Regional Strategy
Thailand has been successful in lowering poverty on a national level; however, income inequality remains high. There are considerable differences in the incidence of poverty across subnational regions and demographic groups. Poverty in Thailand is primarily a rural phenomenon, with 88.5% of the country's 5.3 million poor living in rural areas. The majority of the poor are concentrated in the Northeast (about 58%) and the North (26%) while Bangkok has almost no poverty (0.86%). One important cause of poverty in these regions and an important characteristic of inequality in Thailand is a lack of access to a variety of financial services which would help increase household income and provide a risk protection scheme against future contingencies.
While published data indicates that a large share of the population has access to financial services, there is considerable variation in the degree of access to financial services across income groups. Low income families (the poorest 40% households by income quintile) have access to a limited range of financial services and of lower quality services compared to the middle to high income families (the richest 60% of households by income quintile. For example, about 38% of low income families have only used one or two types of financial services, while another 16.0% of low income households do not use financial services at all. This compares with almost 80.0% of middle to high income families using three or more types of financial services. Similarly, almost half of low income households do not borrow compared to 27.0% of the middle to high income households. About 28.0% of low income households do not have access to savings products compared to 6.0% from the middle to high income groups.
Because of strong direct government involvement in the sector and a weak policy, regulatory and supervisory framework for financial inclusion, entry of other microfinance institutions has been complicated, difficult, and highly restricted. With very narrow options for service providers working under multiple regulators, private sector entry has been stifled, preventing necessary market competition, innovation and service expansion. The lack of private sector participation in microfinance has also limited efficiency and innovation in the sector. Due to the overabundance of inexpensive credit in certain areas and a low level of financial literacy, over-indebtedness and an increased dependence on moneylenders has grown in some regions. The absence of a system for consumer protection and a lack of financial education for low-income clients have further contributed to a low level of financial inclusion. Compared to other countries in the region, Thailand's microfinance industry lags far behind in terms of a policy, supervisory and regulatory framework supportive to sustainable microfinance operations based on market principles. An improved enabling environment with a strong policy, regulatory and supervisory framework with special focus on consumer protection, financial literacy and the expansion of insurance for the low-income market will contribute positively toward greater financial inclusion in Thailand.